Retailer Bankruptcies Make Front Page of New York Times

Tue, 2008-04-15 16:32

It's interesting that the New York Times thought this warranted the lead position in today's print edition. The question of retailer bankruptcies, store closings, etc., has come up a lot in recent months and there has been more mainstream media coverage of the issue than there usually is. It hasn't been relegated to the business pages and press.

I'm not sure there's a whole lot that's new in this story that hasn't been reported elsewhere. But it's still interesting it's getting such major play. The possible bankruptcy at Linens 'n' Things seems to be the proverbial straw in this case.

Retailing is a business with big ups and downs during the year, and retailers rely heavily on borrowed money to finance their purchases of merchandise and even to meet payrolls during slow periods. Yet the nation's banks, struggling with the growing mortgage crisis, have started to balk at extending new loans, effectively cutting up the retail industry's collective credit cards.

“You have the makings of a wave of significant bankruptcies,” said Al Koch, who helped bring Kmart out of bankruptcy in 2003 as the company's interim chief financial officer and works at a corporate turnaround firm called AlixPartners.

“For years, no deal was too ugly to finance,” he said. “But now, nobody will throw money at these companies.”

Because retailers rely on a broad network of suppliers, their bankruptcies are rippling across the economy. The cash-short chains are leaving behind tens of millions of dollars in unpaid bills to shipping companies, furniture manufacturers, mall owners and advertising agencies. Many are unlikely to be paid in full, spreading the economic pain.